Petr Kozyakov of Mercuryo.io shares his thoughts on the recent surge in institutional interest in bitcoin.
The 2018 bear market disrupted the market, forcing many projects to leave the industry.
The growing institutional activity in the crypto arena is not exclusively accompanied by alternative investments.
Petr Kozyakov, co-founder and CBDO of the international cryptocurrency payment solution Mercuryo.io, shares his thoughts on the recent surge in institutional interest in bitcoin and its possible impacts on the digital asset market.
It’s official: 2020 is the year of institutional investments in crypto, especially Bitcoin. And for a valid reason.
Digital asset funds have seen record inflows in their products, while large corporations hold a significant portion of the Bitcoin (BTC) supply in circulation.
But what is behind this phenomenon and how will it affect the maturing crypto market?
Safe assets do not meet investors‘ expectations
Even in a pre-pandemic period, low-risk instruments in the general market generated disappointing returns for investors.
High-quality savings accounts and government bonds are examples of this, the latter currently producing a modest return of 0.86% for 10-year US Treasuries and 0.32% for UK Gilts. over 10 years.
In the worst-case scenario, high-quality bonds like German Bunds provide negative returns for investors, even with maturities of 10 or 20 years.
Even though a safe investment offers returns to investors, the gains are so small that they will be eaten away by inflation.
Institutional investors to replace gold with bitcoins
While individuals can “afford the luxury” of generating very low or negative returns, institutional investors must meet the return on investment expectations of their stakeholders.
That is why, when the general market is disrupted and safe assets are performing poorly, institutional investors should seek alternative investments to increase their returns.
Gold, a safe-haven asset that is widely believed to perform well in uncertain times, is one of those instruments that institutional investors have been turning to since March. However, gold’s bull run ended in August and the asset has been on the decline ever since.
On the other hand, Bitcoin has been steadily increasing since the March stock market crash. Currently trading above $ 19,500, the digital asset is very close to its all-time high of $ 20,000, which it only touched briefly before the devastating crypto winter of 2018.
On top of that, the total supply is capped at 21 million BTC, while also featuring a built-in mechanism called “halving” or “halving,” which halves the number of coins coming into circulation every four years. It’s about fighting inflation and ensuring a long-term increase in the value of the digital asset.
As a result, with year-to-date growth of over 160% and an almost always low level of volatility , Bitcoin has become an attractive safe-haven asset for institutional investors.
At the same time, recent reports from leading investment banks, such as Deutsche Bank and JPMorgan, confirm the same phenomenon, indicating a shift from gold to Bitcoin among institutional investors.